Warren Buffett’s Contrarian Bets on 2 Stocks Bank of America Warns Against

Nevertheless, Buffett must be keeping the faith. He has been loading up regularly and is certainly not messing around here. He currently holds a total of 112.5 million shares, worth over $3 billion. With a 32.5% stake, Berkshire is the top shareholder of SIRI stock.

Buffett must be seeing something Bank of America analyst Jessica Reif Ehrlich is missing. She takes a dim view of SIRI’s prospects, writing, “Investments to improve self-pay traction with younger demographics will take time, while more flexible pricing and packaging will weigh on ARPU and revenue growth. Additionally, Pandora continues to lose users challenging the company’s ability to drive advertising growth. Further, the company is the midst of an elevated investment cycle which is weighing on FCF generation. As such, we expect support from capital returns will be subdued as the company is focused on reducing its leverage in coming quarters.”

Bottom line, Ehrlich rates SIRI shares as Underperform (i.e., Sell), while her $23 price objective suggests the shares will drop by ~15% over the next 12 months. (To watch Ehrlich’s track record, click here)

The broader sentiment isn’t exciting either. The consensus remains lukewarm, with the stock earning a Hold (i.e. Neutral) rating based on a mix of 4 Holds, 5 Buys and Sells, each. Wall Street’s average price target stands at $28.71, indicating modest one-year gains of 6.5%. (See SIRI stock forecast)

Pool Corp

Next up is Pool Corporation, or POOLCORP, the world’s biggest wholesale distributor of swimming pool supplies, equipment, and related products. The company serves a wide range of customers, including pool builders, service professionals, and retailers, through an extensive network of over 440 distribution centers across North America, Europe, and Australia.

POOLCORP’s offerings cover everything from chemicals and cleaning tools to heaters, pumps, and construction materials, making it a one-stop shop for all things pool-related. In addition to its core business, the company benefits from a recurring revenue stream through maintenance products.

This is the sort of stock commonly associated with Buffett, including strong returns on capital and a competitive advantage, or “moat.” POOLCORP’s moat is rooted in its substantial scale, reliable revenue stream from maintenance products, and strong client relationships.

So, it’s hardly surprising to see Buffett has been diving in. He opened a new position in POOL stock during Q3, loading up on 404,057 shares. These are currently worth more than $152 million.

That said, Buffett is showing faith at a time of dwindling returns. Revenue and earnings have both been on the backfoot this year, as was the case in the Q3 print. Revenue fell by 2.7% year-over-year to $1.43 billion, while adj. EPS dropped from $3.5 to $3.26. However, it should be noted that both figures beat Street expectations.

Buffett is obviously eyeing a turnaround, but Bank of America analyst Shaun Calnan remains unconvinced. While the analyst made some adjustments following the Q3 results, his thesis remains a bearish one.

“Management raised the 2024 revenue guide to down (5%) vs. previous down (6%) but maintained full year EPS guidance of $11.06-$11.46 due to higher operating expenses,” Calnan noted. “We increase our 2024E/2025E by 4%/1% to reflect the slightly better revenue outlook. We increase our PO to $335 (from $318), now based on a 19x EV/2025E EBITDA (vs. previous 18.5x) given higher sector multiples. We reiterate our Underperform (i.e., Sell) rating, as we still see risks to POOL hitting its long-term growth algorithm (6-9% topline) in 2025.”

That new $335 price objective backing up the aforementioned Underperform rating still factors in a 12-month slide of 11%. (To watch Calnan’s track record, click here)

Elsewhere on the Street, POOL stock garners an additional 4 Holds and 1 Buy for a Hold (i.e. Neutral) consensus rating. Meanwhile, the average price target stands at $379.80, suggesting the shares will stay rangebound for the time being. (See POOL stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.